It has been about a month since the last earnings report for Invesco (IVZ). Shares have lost about 20% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Invesco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Invesco Q2 Earnings Beat Estimates, Revenues Improve
Invesco reported second-quarter 2019 adjusted earnings of 65 cents per share, beating the Zacks Consensus Estimate of 57 cents. However, the bottom line was 1.5% below the prior-year quarter figure.
Results benefited from improvement in AUM balance and rise in revenues, driven by the OppenheimerFunds buyout. However, increase in operating expenses and net outflows were the undermining factors.
On a GAAP basis, net income attributable to common shareholders came in at $40.1 million or 9 cents per share, down from $245.1 million or 59 cents per share a year ago.
Revenues & Expenses Rise
GAAP operating revenues were $1.44 billion, up 5.8% year over year. However, the figure missed the Zacks Consensus Estimate of $1.52 billion. Adjusted net revenues increased 5.9% to $1.03 billion.
Adjusted operating expenses were $668.1 million, up 11.8% from the prior-year quarter. The rise was mainly due to an increase in property, office and technology expenses.
Adjusted operating margin for the quarter was 35.2% compared with 38.7% a year ago.
As of Jun 30, 2019, AUM was $1.20 billion, up 24.3% year over year. Average AUM for the second quarter totaled $1.06 billion, up 8.4%. Significant improvement AUM is mainly driven by the closure of the deal to acquire OppenheimerFunds in May 2019.
Further, the June quarter witnessed long-term net outflows of $3.9 billion.
Share Repurchase Update
During the second quarter, Invesco repurchased shares worth $264 million.
Management anticipates the OppenheimerFunds acquisition to result in net synergies worth $475 million, 85% of which are expected to be achieved by the end of this year. The company believes nearly 52% of expense synergies will be captured by the end of third-quarter 2019.
By the second half of 2020, the earning power of the combined firm will likely reach the targeted $1 billion of cash, which is well above the regulatory capital requirements. Also, the combined organization is anticipated to have an annual EBITDA of more than $2.6 billion, by the end of 2020, post synergies.
As the company repaid nearly $400 million of debt in the second quarter, it expects to maintain the current level of debt in the future as well.
The company expects to pay roughly $64.4 million as the preferred dividend in the third quarter, and thereafter, approximately $59 million per quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Invesco has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Invesco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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